(Reuters) - The U.S. Environmental Protection Agency on Tuesday released its proposed rule lifting a summer ban on higher-ethanol blends of gasoline to help farmers, putting the agency on a collision course with Big Oil which has called the move illegal.
The proposal to broaden sales of the so-called E15 rule marks the latest flashpoint in an ongoing battle between the corn and oil industries - two crucial constituencies for President Donald Trump - over America’s biofuels policy.
Corn farmers support any move by Washington that would expand their sales into the multibillion-gallon biofuel market, but oil companies dislike the competition and refiners say adding ethanol to their fuel costs them a fortune.
“Consistent with President Trump’s direction, EPA is working to propose and finalize these changes by the summer driving season,” said EPA Administrator Andrew Wheeler in a press release. “We will be holding a public hearing at the end of this month to gather important feedback.”
E15 gasoline contains 15 percent ethanol, versus the 10 percent in most U.S. gasoline.
A summertime ban on E15 had been imposed years ago over concerns that it contributes to smog in hot weather, though recent studies have shown its impact on air quality may not be significantly different from that of E10.
The biofuel industry welcomed the proposal.
“This is one big step forward, a key milestone that we all have circled on the calendar. There is still a long way to go and not a lot of time to get there,” Geoff Cooper, head of the Renewable Fuels Association, said in a phone interview.
The American Petroleum Institute, the largest oil trade group, called on the administration to scrap what it called an “anti-consumer policy,” noting for example that some U.S vehicles could lose their warranties if they use E15.
It called the proposal “contrary to the law.”
The rule also includes measures to limit speculation in the multibillion-dollar biofuel credit market, a concession to merchant refiners such as Valero Energy Corp and PBF Energy Inc, which oppose higher ethanol use and have repeatedly complained about the costs of complying with U.S. biofuels policy.
Under the U.S. Renewable Fuels Standard (RFS), oil refiners are required to blend increasing volumes of biofuels like ethanol into their diesel and gasoline each year, or purchase the credits, called RINs, from those that do.
The agency plans to hold a public hearing on the proposed rule on March 29.
While some refiners like the proposed reforms, they face stiff opposition from oil majors such as Exxon Mobil Corp and Chevron Corp. These companies generate more credits than needed for compliance, allowing them to profit by selling extra credits when prices rise.
Reuters last week reported the details of the proposal aimed at limiting parties from hoarding credits to sell at higher prices.
The measures would prohibit parties such as banks not involved in the fuel supply chain from buying ethanol-based RINs, known as D6s, the most widely traded credit, according to the published rule proposal.
The rule would also shift the program from annual to quarterly compliance, forcing parties to turn credits in to the EPA instead of holding on to them.
Companies with large stockpiles of credits above their compliance requirements would be forced to notify the EPA in certain situations, and their names would be published on the agency’s website, according to the proposal.
The EPA is also seeking to limit the duration a non-obligated party can hold RINs, and increase the compliance frequency of the program.
“It is now incumbent for the Administration to finalize a rule with the right market reforms that limit speculation and manipulation without creating any unintended consequences for RFS obligated parties,” Fuelling American Jobs Coalition, pro-merchant refinery group, said in a statement.
Oil majors are expected to align themselves with truck stop operators and other fuel retailers which are routine sellers of the credits and oppose the proposed limits.
Reporting by Humeyra Pamuk in Washington and Jarrett Renshaw in Trenton, New Jersey; Editing by David Gregorio, Susan Thomas and Richard Chang